Economics

A Sinking Sensation for Subprime Loans

The default rate for borrowers in the sector has jumped faster than anyone was expecting, raising risks for housing and the overall economy

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By Joe Niedzielski

February 15, 2007 at 5:11 AM UTC

This article is for subscribers only.

The gathering storm clouds over the nation's housing and lending markets grow darker each day. Fueling the latest concerns is further fallout in the subprime mortgage loan market, where lenders offer financing to less-creditworthy buyers.

Global banking giant HSBC Holdings (HBC), the third largest subprime lender in the U.S., disclosed on Feb. 7 that full-year 2006 impairment charges at its U.S. mortgage unit would be 20% higher than the $8.8 billion or so that analysts had been projecting. On Feb. 8, New Century Financial (NEW), the nation's second largest lender to subprime borrowers, said it expected to report a loss for the fourth quarter, and that it would have to restate its financial results for the first three quarters of 2006 (see BusinessWeek.com, 2/9/07, "Subprime Time Bomb"). Another subprime lender, ResMAE, filed for bankruptcy on Feb. 13, bringing the total failures to 21 since December, according to www.ml-implode.com, reports Action Economics.